INSIDE FINANCIAL SERVICES.

Low-income areas still in need of bank services, study says

November 21, 2003|By MARK SKERTIC.

Having banks and credit unions in a low-income area is a key element if people in those neighborhoods want to move up the economic ladder, according to a study by Chicago-based ShoreBank's director of advisory services.

Jennifer Tescher was among those presenting a paper during a recent Harvard University symposium on improving access to financial services in low-income areas.

The poor have access to payday-loan centers, loans from Internet-based lenders and other services, but none of those is a substitute for a financial institution, she said Thursday during a post-symposium news conference.

"Depositories are really an important part of the mix if we're talking about asset building, for two critical reasons," said Tescher.

"One is to give people the ability to save. Consumers can conduct many financial transactions at alternative providers, but they can't save. And the second is providing linkages to the formal credit system."

One piece of evidence that banks aren't meeting the needs of low-income consumers is the rapid growth of payday lenders, who charge higher interest rates than banks for short-term loans.

"Payday-advance outlets went from a few hundred outlets in the '90s to now over 14,000 locations nationwide," Tescher said.

Room for competition: The planned merger of Bank of America Corp. and FleetBoston Financial Corp. isn't going to create a financial behemoth that will crush small community banks, Kenneth Lewis, Bank of America's chairman and chief executive told a group of Chicago business leaders this week.

"Competition in banking is measured locally, not nationally," he said during an address at the Executive Club.

While the number of commercial banks is dropping, the number of bank offices continues to grow, Lewis noted.

"Competition will be tougher, and some community banks will not survive," he said. "But every study we've seen indicates that there will continue to be a market for the best-run community banks."

Bank of America has begun expanding its retail banking operations in the area, with plans to have 50 by the end of 2004. While the bank's presence in Chicago is still relatively small, the city has one of Bank of America's largest private bank operations for serving wealthy clients, Lewis said.

More retail outlets: The fastest banking expansion in Chicago-area history continues next week.

On Monday, Washington Mutual is scheduled to open 25 new locations, bringing to 85 the number of retail outlets the Seattle-based bank has opened since June.

National City Corp., which already has an aggressive expansion plan under way in Chicago, is moving west.

Cleveland-based National City announced Thursday that it will spend $474 million to acquire St. Louis-based Allegiant Bancorp Inc., which has 37 branches and about $2.5 billion in assets.

The move expands National City's footprint in the Midwest. It has banks in Ohio, Illinois, Indiana, Michigan, Kentucky and Pennsylvania.

The addition of Missouri will not affect plans to expand to 100 branches in Greater Chicago from 31, a spokeswoman said. "We're still moving forward in Chicago," said Terri Wilson.

The Allegiant purchase was announced the same week that National City was named the top Small Business Administration lender in Illinois for fiscal year 2003. The bank made 141 loans totaling $6.8 million.

The move is part of a deal with Kroger Co., which owns the Food 4 Less chain.

The new centers will be in the grocery warehouses in Chicago's Back of the Yards neighborhood, Burbank and Hammond, Ind. A fourth is set to open in Alsip later this year. The centers will be open seven days a week.